This paper proposes controller design and tuning methodologies that facilitate the rejection of periodic load-side disturbances applied to a torsional mechanical system while simultaneously compensating for the observer's inherent phase delay. This facilitates the use of lower-bandwidth practically realizable disturbance observers. The merits of implementing full- and reduced-order observers are investigated, with the latter being implemented with a new low-cost servo-machine-integrated high-bandwidth torque-sensing device based on surface acoustic wave (SAW) technology. Specifically, the authors' previous work based on proportional-integral-derivative (PID) and resonance ratio control (RRC) controllers (IEEE Trans. Ind. Electron., vol. 53, no. 4, pp. 1226-1237, Aug. 2006) is augmented with observer disturbance feedback. It is shown that higher-bandwidth disturbance observers are required to maximize disturbance attenuation over the low-frequency band (as well as the desired rejection frequency), thereby attenuating a wide range of possible frequencies. In such cases, therefore, it is shown that the RRC controller is the preferred solution since it can employ significantly higher observer bandwidth, when compared to PID counterparts, by virtue of reduced noise sensitivity. Furthermore, it is demonstrated that the prototype servo-machine-integrated 20-N · m SAW torque transducer is not unduly affected by machine-generated electromagnetic noise and exhibits similar dynamic behavior as a conventional instrument inline torque transducer.